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Opinion: Nigeria proposes reform of oil industry

President Yar'Adua puts forward new legislation but it looks unlikely to effectively reform the industry.

Need for reform of the industry, however, has been long recognized. Increases in production are constrained by the failure of the national oil company to provide its proportionate share of the required investment because it is dependent on erratic National Assembly appropriations and is denied access to capital markets.

The current ramshackle regulatory regime in Nigeria has elements dating back to colonial times and takes too little account of the emergence of huge off-shore fields. In part, because of the lack of capital investment, a large percentage of the natural gas is lost to flaring.

Intended to serve the domestic market, Nigeria’s refineries are unprofitable, under-capitalized and seldom function. As a result, most of the gas, oil and kerosene is imported, and the federal government subsidizes fuel for the benefit of the general population. Efforts to eliminate or reduce the subsidy as recommended by the international financial institutions have resulted in mobs in the streets.

In the Niger River delta, where oil is pumped, environmental degradation associated with the industry deprives many of their traditional livelihoods. There is a nearly universal perception in the region that it benefits too little from being Nigeria’s oil patch. This sense of grievance plays an important role in the local population’s acquiescence or support for anti-government militant groups that attack and sabotage oil facilities and kidnap expatriate workers. Increased revenue allocations to the delta called for by its governors and other regional political leaders would mean less for the other states, many already poorer than the delta.

While the PIB addresses reform of existing government institutions involved with the oil and gas industry, it avoids addressing directly the political hot buttons of government fuel subsidies and the formula for allocating oil and gas revenue among the states, reasons why the southern governors oppose the legislation. Nevertheless, the legislation would establish a context for addressing those issues, though not necessarily to the liking of the elites involved.

Even if the legislation were to pass, the caveat would be the government’s ability to implement it. The draft legislation establishes a timeline for the creation of new institutions and policies but not for their use or implementation. In the meantime, the debate on the PIB in the National Assembly introduces uncertainty about the future of the petroleum industry, which may cool international enthusiasm for the investment necessary to increase Nigeria’s production.

John Campbell is the Ralph Bunche senior fellow for Africa policy studies at the Council on Foreign Relations (CFR). He was ambassador to Nigeria in 2004 to 2007 during the civilian presidency of General Olusegun Obasanjo.